HOW TO: Talk About a Pay Increase

I saw a post recently on Blanchard LeaderChat about the reasons employees join and stay with organizations. It’s a very enlightening list – you can check it out here. The number one reason was money. I was really surprised.

As HR pros, we’re often quick to say that money isn’t a motivator or a top reason for employees when it comes to career decisions. But maybe after a few years of corporate belt-tightening…the trend is changing.

That’s why, when my friends at the Hay Group sent me their latest study on employee pay increases, I decided to ask a few questions. If you’re not familiar with them, the Hay Group is a global consulting firm that develops talent to be more effective and motivates them to perform at their best. They have 85 offices in 48 countries and work with over 7,000 clients worldwide.

I spoke with Tom McMullen, vice president and North American reward practice leader, and Jeff Blair, U.S. productized services leader about the Hay Group’s latest survey on U.S. employee pay increases.

Tom/Jeff: Hay Group’s forecast results are based on the latest data available from Hay Group’s U.S. database, provided by 350 U.S. organizations from March through June 2012. This is Hay Group’s 33rd year of conducting the survey. Typical respondents to the survey include compensation professionals in the human resources departments of small to large size U.S. organizations across a wide range of industries. Hay Group’s U.S. database represents compensation practices for almost 2,900 companies and over 6.7 million employees.

The survey mentioned that employees can expect a median increase of 3% next year. Frankly, that doesn’t sound like a lot. Then I read the news about rising food and clothing prices. How are pay increases stacking up with the cost of goods and services?

Tom/Jeff: After factoring in annualized consumer price index growth at 2.2 percent, the resulting pay movement for 2013 is a net gain of 0.8 percent, after employees saw an estimated 0.6 percent net loss in 2012. 

So, if an employee decides they want to approach their boss about pay, what can they do to prepare for the conversation? In my opinion, this is one of those conversations that employees need to prepare for and often they don’t. 

Tom/Jeff: The employee should show they are serious about this conversation by setting up a meeting to discuss this with the manager rather than by doing it in an informal setting.  The employee should be able to articulate the contribution they are providing to the organization and how this relates to the performance expectations of the role.  If there is a belief that performance is strong and contributions exceed the expectations of the role then the employee should make their case dispassionately using specific examples.

Also consider asking the manager what needs to be achieved to be able to advance to the next level of work.  This should send a loud signal that the employee believes that his performance is strong and he is motivated to advance in his career.  It is often quite helpful to have this type of meeting prior to a formal compensation review meeting to allow the manager advance notice of the employee’s thinking.

On the flip side, when employees do talk with managers about pay, sometimes the manager is caught off guard and can say the wrong thing. If I’m a manager and one of my employees comes asking for more money, what are 1-2 tips I should keep in mind?

Tom/Jeff: The manager should have a good understanding of what is driving the employee’s request about pay.  Is it a comparison to the external market, comparison to pay levels internally, comparison relative to perceived performance contribution or something else?  Often requests for increased pay can be signals that the employee feels they are being disadvantaged and not treated fairly within the workplace – the real issue could be concerns around career development, job design, coaching and feedback or recognition.

The key thing is for the manager to engage the employee in a discussion to get to the root cause of their concerns and to consider how this can be addressed – by monetary means or otherwise. 

Last question, are you seeing any trends in compensation that business pros should start paying attention to? 

Tom/Jeff: With constraints on financial rewards such as base salary increases and bonuses, organizations are increasingly focused on the range of total rewards with an increasing focus on non-financial rewards such as the ones listed above, with a particular focus on developing and fine-tuning their career development programs – as we have found that this is the primary work environment dimension that drives retention within the organization. 

Again, my thanks to Tom, Jeff and the Hay Group for sharing their expertise. If you’d like to read more about their latest survey, you can check it out here. You can also follow their blog or Twitter account.

I’ve been noticing the same trend toward training and career development in lieu of monetary rewards for a while. I’m glad to see I’m not the only one. What are you seeing where pay and increases are concerned? Let us know in the comments.